The Gold futures market has been a rollercoaster ride for the last few months – trading in the spot month to almost $700/oz. down to the $640’s/oz., and everywhere in between. It truly reminds me of the Gold market of 1979 in many ways, although the 1979 market was much more volatile producing $100 trading ranges at times in a single trading session.
There certainly appears to be many more gold traders today. Personal computers and electronic exchanges allow for easy access to the futures markets. Large players such as India, China, and the United States have added tremendous volume to the quantity of gold moving around the planet. In my opinion the Gold market has a lot of upside left and I base that in part on slowing economic numbers evidenced by such statistics as decreased housing starts and housing permits, along with the apparent never-ending geopolitical concerns and the worldwide terrorism threat.
There are many factors that may cause Gold to move higher and the following are but a few:
(1) Out-of-control government spending and trade deficits
(2) Soaring energy prices
(3) Negative real interest rates
(4) War environment
(5) Inflation
Traders watch the news wires and can quickly discount bullish or bearish developments. Many investors, bankers, and traders consider the Gold market a safe haven for their money as they still believe that gold is the world currency.
Let’s face it, the world seemed a safer place in 1979 relative to today’s potential nuclear threats from North Korea and Iran, the Israeli / Hezbollah volatile situation, and the constant consideration given to terrorism. It seems the odds of something erupting are good, though I truly hope I’m wrong. If any of the five factors listed above happen, in my opinion it should be bullish for Gold.
On top of reports coming out of South Africa and Russia projecting a plan to raise their Gold production, I believe the Gold community realizes the need to produce even more Gold to satisfy the growing demand.
I believe the Gold trading sector is getting larger everyday and it’s just a drop in the bucket of what it will become. Look at the volume on all the exchanges that offer Gold futures to trade, it truly is a worldwide market that almost never closes. It’s attractive to all because everybody knows about Gold. Also,
A big complaint I hear from traders is that the Gold market breaks faster than it rallies. Well, many markets break faster than they rally and the reason for that is very simple. In my opinion, the mentality of most of the market makers on the trading floor is more bearish than bullish, whereas the public for the most part are more likely to buy before they sell. Since the market makers are taking huge risks to make markets, when the news turns negative the market makers have the edge and will push the market downward – touching off stop/loss orders and magnifying a decline.
I believe Gold is going a lot higher, but since I’m a long time commodity trader and not a fortune teller, I don’t know exactly how much higher. Quite frankly, in the short-term I don’t care if the market goes higher or lower, as I simply trade my support and resistance numbers and try to take what the market gives. I realized a long time ago that for me it is best to stop trying to hit home runs and instead take what the market will give. Typically the only time I would advise a client to take a Gold position overnight is if it was a hedged position, spread, or option. It seems to me that most of the time when a client decides to carry a naked futures position into the next day’s trading session it becomes a much more risky affair.
The Gold and the Crude Oil are considered to be ‘anti-dollar,’ so when trading Gold always keep an eye on the Crude Oil. Another observation is that traders should also keep an eye on option strike prices and their associated volume. I have found that it’s a great guideline to see what the gold trading sector may be thinking long-term. Presently I see lots of interest in the 750 strike to the 1000 strike on the call side. This means, to me, that traders are thinking the Gold market will trade over $750.00 and potentially over $1,000.00 dollars per ounce. There are several top Gold Analysts who have predicted $1,500.00 gold by this time next year, and conversely there are also pit traders who look for gold to retrace to $500.00.
This is why I advise traders not to marry positions and if and when the market offers a profit … take the money! The saying on the trading floor goes “bulls make money, bears make money, and pigs get slaughtered.” In other words … take the money!
Over the last 20+ years I have learned that the traders who last the longest and are the most successful are the ones who’ve learned the market is always right. They’ve learned to get out when they’re wrong (because you can always get back in), and to take profits when given. There’s nothing more a trader should hate than turning a winner into a loser. During my time in the trading pits I learned the hard way, like most, to get out or go broke. I believe the volatility in the Gold gives you ample opportunity to get in and get out. With the ever increasing volume it’s typically a great market to day trade.
If you would like to talk more about the Gold market or trading strategies, please feel free to call me at 1-800-282-2770 or email mdaly@manducatrading.com. To view my daily insights you can also visit my blog at dalygoldreport.blogspot.com
Mike Daly is a Senior Trader at Manduca Trading LLC. Mike’s expertise in the futures markets is derived from twenty years of diverse experience that includes being a trader at the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board of Options Exchange. Mike filled the role of gold broker for both Goldman Sachs and J.Aron, and was a member of the Chicago Mercantile Exchange Gold Committee. Mike publishes a daily blog for Manduca Trading LLC called “The Daly Gold Report” that shares his opinion on the Gold market and its latest influences, as well as quips on his trading methodology. The blog can be found at the following
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